Discussion:What constitutes "doing business" in a state?
From TaxAlmanac
Discussion Forum Index --> Advanced Tax Questions --> What constitutes "doing business" in a state?
Discussion Forum Index --> Tax Questions --> What constitutes "doing business" in a state?
Kareneemery (talk|edits) said: | 4 January 2008 |
| I have a strange situation -- wondering if anyone has encountered something similar. I have a client that is based in the UK. They have an EIN from the IRS and a certificate of authority to operate as a foreign entity in NC, which is where their office is located. Last year, I filed an 1120-F and NC corporate return for them. They're a medical device research company and have set up their US offices primarily to run clinical trials to get FDA approval on their product. As a result, so far they have no income. All US expenses are reimbursed by the UK office, but it's really all just one entity. Here's where I'm stumped. They lost their one employee, who resided in NC, and have replaced him with a person who resides and will work in Maryland. This is the only employee. There is an office in NC, I cut checks from NC, the bank account is set up in NC, but all of their salary expense will originate from this employee in Maryland. The NC office is staffed by contract professionals. My thought is that I will have to set up a Maryland withholding account to withhold from the Maryland employee's paycheck. But at what point could this be considered to be "doing business" in Maryland, as opposed to NC, so that I should look into their needing a certificate of authority (or similar form) and income tax return for Maryland instead? I should probably mention, too, that this sole employee is a VP of the company. Is there still a good basis to say that the principal place of business is NC?
I appreciate any assistance in understand the correct way to go with this one. | |
| 4 January 2008 | |
| I think your client is doing business in two states. The EE lives & works in MD so they are doing business there. They also have agents of the corp (i.e. the contract professionals you mention) transacting business in NC so they are doing business there also. | |
Kareneemery (talk|edits) said: | 4 January 2008 |
| Boy, I figured that might be the case. Is this the point where the attorneys need to decide what paperwork needs filing in Maryland? And this is the part where I have to figure out how to apportion income (or losses, for the time being) between the two states? Is there anything else I'm missing?
Thanks so much for your help. | |
Oldeastsidr (talk|edits) said: | 4 January 2008 |
| I agree with Jdugan. Especially since the Maryland employee is an officer. As such, this person supposedly has the authority to make decisions, accept orders (if any), and negotiate on behlaf of the company. The normal way of apportioning is to use the 3-factor formula. Quite likely two of the factors (receipts and assets) will have a zero ratio while the payroll factor will have some sort of high ratio. Something to think about for the future should there be profits. | |
Glimmrmoon (talk|edits) said: | 4 January 2008 |
| I would look into Maryland's specific rules as to what constitutes nexus. If they use the 3-factor presence, sales and payroll system, then they certainly seem to have at least 2 of the 3 in both states, which is generally all it takes. | |
Death&Taxes (talk|edits) said: | 4 January 2008 |
| The next question to ask yourself is 'do they have to continue filing in NC?' | |
| 4 January 2008 | |
| If the business in incorporated in NC and the registered agent office is in NC, then they would continue to file in NC but if they moved their business to MD, then why not transfer all the nexus creating activities into MD and then just operate there?
Only way to prevent nexus in both states would be that the contract personnel are available to work for the general public and are tied directly as an agent of the UK corporation. If they work for several outfits, then perhaps they are not creating nexus in NC by virtue of offering their services to anyone and everyone....the contractor then has nexus and files returns there, but if they are independent of the UK corp, then certainly this is an issue where there may not be nexus in NC..... | |
Kareneemery (talk|edits) said: | 5 January 2008 |
| I believe they have considered relocating to MD, so that may happen in the future. It will certainly simplify things for them if they do, though I guess I may lose a client from it. (Although no real reason why I should. I never see them anyway and they're just across town!)
Thanks for all of your help. Karen | |
Bottom Line (talk|edits) said: | 5 January 2008 |
| Shouldn't have to lose a client. I've got clients I've never met! We communicate via phone, email & snail mail. | |
